Vertical Price and Non-Price Restraints in Australia and the US: A Comparative Analysis

Since Australia's restrictive trade practices laws draw heavily on US antitrust law, it is instructive to compare one jurisdiction with the other. This article examines the law and economics of vertical price restraints and vertical non-price restraints in the US and Australia. It analyses the law behind, and economic explanations for, a number of vertical restraints, including resale price maintenance, territorial clauses, customer restrictions, requirements contracts and tying arrangements. It sketches the history of US and Australian laws and highlights pitfalls in judicial and legislative methods of regulating vertical restraints. It is argued that, while each country's laws treat vertical non-price restraints less strictly than vertical price restraints, economic theory lends little support for treating the restraints as fundamentally different, and both vertical price restraints and vertical non-price restraints may enhance society's welfare. Manufacturers' incentives for utilising vertical restraints are examined. The welfare implications of vertical restraints are explored. It is argued that both vertical price restraints and vertical non-price restraints may be welfare-enhancing and that the per se prohibition on vertical price restraints cannot be justified. It is argued that the current Australian approach to regulating resale price maintenance is unsatisfactory. Alternative regulatory approaches are suggested.